When a major Northeast bank decided to send an application project to China, price was not its first consideration. The bank is a good customer of two large Indian service providers and has been for years. Negotiating a competitive rate is not a problem. Nor is high turnover rate -- a common complaint voiced these days about Indian providers. Important customers tend to be shielded from revolving staff doors.

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But despite the kid-glove treatment from its Indian providers -- and real risks in sending IT work to China -- the bank had its reasons for getting a toehold there.

Talent.

"I would say that the talent there is probably a much more compelling story than cost. If you can tap into what I call these unpolished diamonds, what you can get is just phenomenal," the bank's managing director said.

Nascent market

The managing director, who was not allowed to use his name or the bank's, had traveled to China extensively in his previous job with a Boston bank and was impressed by the labor pool. "There is a lot of high-caliber engineering talent in China that has not been tapped in the way that Indian talent has, so the richness of the resources is much higher because the market is nascent," he said.

The nascence of the Chinese market is precisely what Dextrys Inc., the U.S.-based China outsourcing firm the Northeast bank chose to work with, is in fact banking on. Formerly DarwinSuzoft, the Wakefield, Mass.-based provider was acquired last year by
Francisco Partners Management LLC, a San Francisco private equity firm. Francisco pumped in $48 million and brought in new management, including CEO Brian Keane, also an investor.

"We are all here for one reason: We believe China is the next major outsourcing destination," Keane said. "We really believe we can be the No. 1 China outsourcing firm."

Keane's pitch for China starts with India, or rather, India fatigue, and ends with the China miracle. Between the appreciation of the rupee, double-digit inflation and turnover rates as high as 40% at some Indian providers, Dextrys customers "are feeling as though they have country-risk with India," Keane argues. They feel overexposed in India and want to mitigate their risk.

Making China easy

With 1,000 engineers in China and 400 in the United States, Dextrys is staking its future on promising a relatively risk-free bridge to China. The firm has used some of its new millions to integrate its China and U.S. sides of the business into one operating entity, with common processes, metrics and project management disciplines. Project management, an area where China falls short compared with India, is handled by the firm's U.S. engineers in Boston, Atlanta and San Francisco, who work on-site with clients. Its main China operations are in Suzhou, with other locations in Shanghai, Beijing and Hong Kong.

"Getting that integration can significantly increase project success," Keane said, adding that his firm has the "scars on its back" to prove it.

Fears about intellectual property (IP) rights are "more a perception than reality," Keane said, noting that the top technology firms in the world, including Microsoft, Google Inc. and Oracle Corp., are doing research and development in China. Laws are in place on IP rights today, and since China has joined the World Trade Organization there is "more focus on enforcing the laws," Keane said.

The lack of English language skills, another area where China seriously lags India, is a hurdle for U.S. companies doing business in China, Keane acknowledged. Industry observers like Gartner Inc. agree. In its 2008 annual report card on top outsourcing destinations worldwide, Gartner said China (along with Russia and Brazil) was proving a credible alternative to India, "the undisputed leader" for offshore services. U.S. companies would find strong government support in China, Gartner said. But English language skills in China were graded "less than good," by the Stamford, Conn.-based technology firm.

"All of our employees speak English, and that is a condition of hire. Yes, there is an accent, but their written English is excellent, in many senses better than most Americans'," Keane said. The firm relies heavily on written communications, he said, as well as tools such as iRise that enable visualization of requirements. In addition, about 8% of Dextrys' ground force in China are foreign-born nationals from around the globe who are "strong English speakers with Western experience," he said.

Keane said Dextrys' target clients also tend to be companies with a China bias. They are intent on entering the world's fastest-growing economy, Keane said, referring to a Gartner Inc. prediction that by 2010, 20% of all enterprises using offshore services will make decisions based on geographic business alignment rather than labor arbitrage. Doing business in China depends on a good relationship with the Chinese government, the source of perks like tax incentives and real estate subsidies. "The Chinese government also encourages companies to outsource their IT services to China," Keane said, reciting his company's new motto: "Dextrys is 'making China easy for clients.'"

Picking the right project

Dextrys' major Northeast bank client has been pleased thus far with the firm's ability to provide a smooth passage to China, said its managing director of systems and technology. He added that it's important that CIOs pick the right project.

Texting in China

The managing director of a major Northeast bank, said U.S companies will be 'thrilled" by the engineering talent pool in China, but they should be under no illusions about the predominant language in the world's fastest-growing economy.

"It is surprising how little English is spoken," he said. "If people think they can go there and manage in English, they will be in for a big surprise," he said.

His U.S.-based China outsourcing firm, Dextrys Inc., is "doing a fantastic job shielding us from that," he said. But he has another suggestion for U.S companies sending IT work to China: texting. English written communication skills, as many have noted, are "much superior" to spoken skills. "We used IM a lot to foster much better teamwork and collaboration."

"In general, you want to walk before you try to run, obviously. I would try to pick a project that is more technical in nature, more engineering in nature, than one that has higher business complexity," he said.

"Communication, project management -- those kinds of things are still in their nascent stage. China clearly doesn't have the experience India has. But Dextrys is doing a fantastic job of providing that bridge with local resources."

The bank's initial project entailed Web-enabling mainframe applications, so its Internet client services team could provide better and faster customer service. "To get good access to information, our Internet folks have to log into three or four different systems in some cases," he said. Just to answer a question of an international client whose accounts were spread across systems meant logging on multiple times to collect the data, then analyzing it before getting back to the client. The project with Dextrys provides a unified view no matter where the data resides, allowing for a dramatic improvement customer service, he said.

That project has moved into production and the bank has moved on to a project "that is a bit more ambitious," he said, a prototype of a rewiring of the bank's legacy accounting program.

But the bank, in the midst of a major merger, is taking its China foray "one project at a time," he said. There are lingering concerns about security. The bank has a small presence in China and has "seen the hacking attacks come through that part of the world," he said.

Companies with an engineering mindset "will be extremely thrilled by the work they can get," he said. "But it will also be clear that market will take some time to mature."

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